Before I switched from MSNBC to CNN for coverage of yesterday's historic inauguration of Barack Obama as President of the United States, one of the MSNBC commentators said something that piqued my interest. He said that the only good examples of a President entering office in a recession before Barack Obama are Ronald Reagan (1981) and Franklin Delano Roosevelt (1933). Further the commentator contrasted Reagan's promise to decrease the size of government with FDR's commitment to increase the size of government. However, the following picture shows that Reagan is not the correct counterfactual.
This picture plots the annual deficit as a percentage of GDP. The gray bars designate NBER recession periods, and the red vertical lines are the inaugurations of each president from Franklin Delano Roosevelt (1933) to Barack Obama (2009). This graph shows that every president since FDR who entered office in a recession increased the deficit as a percentage of GDP... except one.
Harry Truman (1945) came into office during the recession at the end of World War II. Deficit spending under Truman had its largest decrease as a percent of GDP in the history of the United States. However, this decrease largely reflected the end of spending on the war.
Regarding the current stimulus debate about whether or not the government should spend its way out of a recession, you might look for a counterfactual of a president who came into office with a recession and cut the deficit instead of increased it. But the only one you have is Truman, and his deficit reduction was largely due to the end to the largest international commitment the U.S. has ever had.
So we are left to rely on theory, not data, in order to make arguments for or against the government stimulus plans currently in place. Our government seems to have never done anything but respond to economic crisis with spending--the Keynesian view. Maybe we can look to other countries for examples of how our economy would respond if we were to take a more market-based, classical approach.
UPDATE: Courtney Nosal and Laurel Graefe at the Federal Reserve Bank of Atlanta posted some similar analysis today (Tuesday, 1/22/09) on Macroblog. They are looking at how other economic indicators, such as GDP, unemployment, and CPI, are related to presidential tenure in the United States. I recommend their pictures.
Harry Truman (1945) came into office during the recession at the end of World War II. Deficit spending under Truman had its largest decrease as a percent of GDP in the history of the United States. However, this decrease largely reflected the end of spending on the war.
Regarding the current stimulus debate about whether or not the government should spend its way out of a recession, you might look for a counterfactual of a president who came into office with a recession and cut the deficit instead of increased it. But the only one you have is Truman, and his deficit reduction was largely due to the end to the largest international commitment the U.S. has ever had.
So we are left to rely on theory, not data, in order to make arguments for or against the government stimulus plans currently in place. Our government seems to have never done anything but respond to economic crisis with spending--the Keynesian view. Maybe we can look to other countries for examples of how our economy would respond if we were to take a more market-based, classical approach.
UPDATE: Courtney Nosal and Laurel Graefe at the Federal Reserve Bank of Atlanta posted some similar analysis today (Tuesday, 1/22/09) on Macroblog. They are looking at how other economic indicators, such as GDP, unemployment, and CPI, are related to presidential tenure in the United States. I recommend their pictures.
